Integenerational Report 2015: Why should Australia become so Big so Fast?

The release of the 2015 Intergenerational Report (IGR) by the Treasurer Joe Hockey brings nothing new to raise hopes that the government is realistically managing the long-term future of our country. It is very odd that one of the major variables in the report’s forecasts is presented with no discussion or justification. This is the expected level for annual net overseas migration (NOM).

The report fails to place NOM in a meaningful perspective. It simply assumes that the recent experience will continue. It states:

Net overseas migration has varied substantially over recent decades. During the decade to 2005, it averaged around 105,000 per annum. Over the period since 2005, net overseas migration was much more rapid, averaging around 220,000 per annum, and reaching a peak of 300,000 in 2008–09.

The assumption is then made that NOM will be 215,000 over each of the next 40 years. Why should this assumption be based on the experience of the past ten years? Of course actual experience could be lower (or higher) than projected but the assumption implies that politicians and economists are not contemplating any change in current policies.

The outcome of the NOM and demographic assumptions (births and deaths) is:

Australia’s population is projected to grow at 1.3% per year, which is slightly below the average growth rate of the past 40 years. If this were to occur, the population would reach 39.7 million in 2054–55, up from 23.9 million today.

The population growth rate since 2006 has been higher than any time since 1990, as shown in the graph.

An increase of 1.3% per year sounds pretty innocuous doesn’t it? But it leads to an extra 15.8 million people in just 40 years, more than today’s size of our all our capital cities combined. Australia’s current population growth rate is the third highest in the OECD, exceeded only by Israel and Luxemburg. The average growth rate in the OECD is currently about 0.7% pa.

The government and other forecasters have a percentage increase mindset but they forget (or ignore) the effects of exponential growth. They fail to notice that 1.3% of today’s population is a lot different to 1.3% of population 40 years ago. In 1975 our population was 13.9 million so that a 1.3% increase was 180,000 extra people each year that need housing, transport, water and other services. Today a 1.3% increase is 300,000, the size of the city of Canberra, which needs to be planned for and developed each year.

We have failed to planned for and provide adequate infrastructure for population growth as is now evident with traffic congestion, crowded schools and hospitals. How can we possibly cope with this level of growth in the future? Our quality bushland is already under threat from overdevelopment. The demand for land for development can only increase unless we accept high rise living, smaller houses and lower consumption of resources as the norm.

Quality of life is measured by individuals in many different ways. Is it acceptable for governments to impose the consequences of much higher population on Australians without any widespread public debate on the subject?

Arguments in Favour of High Immigration

There are several arguments that are trotted out by vested interests to support high immigration levels:

1. Higher Economic Growth

A quote from the IGR states:

Lower levels of net overseas migration would lead to lower population growth rates over time and, therefore, lower economic growth.

In other words the bulk of economic growth that is crowed about is from population growth. A large part of this growth is from more housing and construction. Growth on a per capita basis adjusted for inflation has hardly changed.

The IGR makes this weak statement:

There is some evidence that high levels of net overseas migration might increase productivity, as the skills focus of Australia’s migration program means that migrants may, on average, be better educated than the average Australian.

The Productivity Commission modelled the wealth impacts of higher migration and found that much of the higher income went to the migrants themselves while real wages for the incumbent population declined but returns from capital improved (2).

2. Reduced Cost of Aging Population

A study by Dr Katharine Betts (3) shows that, while high immigration can reduce the median age of the population by a few years, it comes at great cost. She argues that significant population growth lowers national productivity by taking resources away from productive investment and diverts it to supporting social and infrastructure needs.

The argument that there will be more people of working age is offset by the fact that there will be many more older people than would be the case were the population to stabilise. For example, if NOM averaged 200,000 over the rest of this century the median age would be 43.7 compared with a median of 47.7 if population stabilised at around 26 million. However the number of people over age 65 would have increased to 18 million by 2100, compared to a total of 3.2 million in 2012. With a stable population the number of over 65s would be about 8 million.

An older age structure is inevitable as life expectancy has increased and fertility rates worldwide have reduced. Going back to the bad old days of large families and shorter life expectancy is the only way to solve the aging problem. Is that a good idea?

3. Meeting Employment Shortages

Employers argue for immigration to meet labour shortages. Therefore, the recent slowdown in mining development should be leading to a slowdown in immigration.

A report by Bob Birrell (4) finds that that the number of migrants arriving in Australia since the beginning of 2011 who found jobs is equivalent to the total number of new jobs created in Australia over the same period. This has had a harmful impact on the level of employment participation in the labour market and the working conditions of other Australians, particularly young people.

There are many ways of overcoming workforce shortages, mostly related to improving employment opportunities and training for the young and older and better planning for future education needs.

4. Finance for Social and Environmental Improvements

The government argues that economic growth and strong environmental outcomes are complementary objectives. Policies that create strong economic growth and a sustainable budget will mean that governments are better placed to invest in environmental protection. Additionally, protecting the environment can also contribute to economic growth, particularly in sectors such as tourism.

On the other hand, the Productivity Commission (5) puts the cost of population growth into perspective:

Total private and public investment requirements over this 50 year period (2012 to 2060) are estimated to be more than 5 times the cumulative investment made over the last half century, which reveals the importance of an efficient investment environment.

Australia’s permanent migration intake is determined by government policy (including the mix between skilled and family reunion places) and is subject to review each year as part of the Budget process to reflect evolving economic and social circumstances.

As STEP has been saying for many years, none of the major political parties wants to discuss the most significant issue that will affect our long-term future, that of the rate of population growth and whether we should aim for a stable population. And the IGR hardly mentions climate change! It is a matter for despair.

References

Krockenberger, M (2015) Population Growth in Australia. The Australian Institute

Population and Migration: Understanding the Numbers (2010) Productivity Commission

Betts, K (2014) The Ageing of the Australian Population: Triumph or Disaster? Centre for Population and Urban Research, Monash University

Birrell, B (2013) The Impact of Recent Immigration on the Australian Workforce Centre for Population and Urban Research, Monash University

An Aging Australia, Preparing for the future (2013) Productivity Commission